Releasing a discussion document to remove the too good to be true hybrid mismatches and

Is thinking about considering finally taxing multinationals properly.

All stuff that would be more at home in a Green Party manifesto than the Business Growth Agenda. Now until this week I would have thought him a solid performer but not exactly a political operator. And its not like that is a bad thing. Chilled out entertainers get on my nerves.

But then the Herald stuff started on Wednesday. Bylines and headlines of the government taking unilateral action and the Opposition saying it wasn’t going far enough. What? How was any of this news?

Going through all the detail – coz that is what I do – here are the facts:

In June Hon Bill and Hon Mike announced they were doing lots of multinational stuff including reviewing the interest limitation rules which is a big ticket way of not paying tax.

A month ago Hon Mike announced there would be a discussion document on the whole diverted profits tax thing and interest deductions in February. I never covered it coz it looked quite sane and thought I’d wait for the detail.

The reality of a discussion document in February is that while it might make a bill before the election. There is no way it can be passed into law by the time we go to the polls. So it will be become the next government’s problem to actually make it happen.

Wednesday the Herald gets an advance copy of a cabinet paper probs also written a month ago. It says no to an actual diverted profits tax but proposes a bunch of stuff based on the work the OECD that should broadly have the same effect but without the drama of overriding our tax treaties.

Oh and of course tax is inherently unilateral. Some how that seems to have got missed.

The other thing that got missed is there was no detail on any moves to counter interest deductions. That is important but hard. And according to the June statement from both the boys was coming out this year. Waiting. Waiting.

Now from these little factoids Hon Mike got four articles in the Herald and me tomorrow in The Spinoff. Wow. Breathtaking. And – it is worth repeating – all on a subject announced at least a month ago that cannot become law in this term of government. And and he got a complete free pass on what he didn’t mention – interest deductions.

Sir. I have underestimated you. A solid performer AND a player.

And now you are leaving me and picking up ACC. But the real news is the change in your ranking from 19 to 9. This week has paid off for you.

Now I am not sure if I am going to find that Hon Judith is a closet lefty. But just in case my advice is:

Carry on with the work on withholding taxes and particularly look at how vulnerable workers are treated and their risk of tax evasion;

Interest deductions. Coz it is actually a key plank of work of OECD and is on a permanent foreshadow; and

Keep an eye of those intermediaries and what they are doing with taxpayer data.

But otherwise good luck. I am pleased that Revenue is going to a senior Minister and none of this ‘outside cabinet’ nonsense. Michael Wood is going to have his work cut out for him marking you.

Your (foreign) correspondent is having a lovely holiday – thanks for asking – and is about to get on a train to visit a friend in Geneva.

Several lifetimes ago – my children and hers – and long before I discovered tax or yoga, as young women we worked for a US oil company in London as management accountants. As well as being pleased to see her I am always interested to see how she is doing in a parallel lives kind of way. She stayed and career tracked and I – well – didn’t. In a substantive sense though our lives are very similar other than maybe her husband had to give up work and my french is better.

Before the Panama Papers our prime minister – bless him – gave an interview where he had a vision for New Zealand as the Switzerland of the South Pacific. Interesting desire as it is a country where women only got the vote in 1971 and one in which a senior employee of a major US company cannot afford to live comfortably. It is french speaking though so maybe it could grow on me as an idea. But then maybe he was just thinking rich with awesome mountains and great chocolate rather than exclusive and secretive. Somehow I doubt it.

And pre Panama Papers foreign trusts fitted a little too well into that vision. Professional advisors charging fees to help rich foreigners hide their money from others. Or maybe not.

In ‘Thank you for Smoking‘ a favourite line of mine is that:

[cigarettes] are cool, available and addictive. The job’s almost done for us!.

And with foreign trusts there was no tax, little disclosure and no requirement for the money to actually ever come to New Zealand – the job was almost done for them! But after 25 years our valiant foreign trust industry with extensive marketing had only managed to earn $24 million a year with $3 million in tax.

In all the arguments about whether New Zealand was a tax haven or not, one argument got missed by the opposing side. Tax havens charge fees or levies or require the dosh to be parked in the country concerned. None of which applied here. So as a country we got the bad name but not the income – genius.

Now we have the Shewan report and John had recommended increased disclosure as had other commentators and the Greens. And I agree this should staunch any reputational damage. The difficulty I have with this though as this simply replaces one cost – our reputational damage – with another cost – additional Inland Revenue administration and distraction from their real job of ensuring compliance with our tax system.

All for $3 million in tax which may well reduce once increased disclosure is in place. At least Hon Mike please reconsider Mr S’s rec for registration fees. $50 upfront and $270 per year – really? I had no idea the department could do its job so cheaply.

Coz Hon Mike you are right to be considering it and I’m right behind you. If we really aren’t a tax haven then isn’t it fair that the NZ foreign trust is treated the same way as all other entity hybrids? Isn’t consistency a hall mark of a good tax system? And aren’t the foreign trusts in New Zealand for a bunch of legitimate reasons that have nothing to do with tax?

Your (foreign) correspondent is in London this week catching up with friends and family over a quarter of a century since she arrived for her big OE. My timing was exquisite as the month I arrived – April 1990 – almost perfectly corresponded with the start of the Exchange Rate Mechanism recession and my departure in December 1993 with its ending.

Having lived through that I never want to live in a country again that does not have control of its monetary policy. For all Michael Reddell has concerns over Graeme Wheeler’s stewardship; what New Zealand is facing currently is nothing compared to what England in the early 90’s faced. That is being in recession with high interest rates all because Germany had inflationary pressures due to reunification.

The experience was all the more wonderful as my working career in New Zealand in the late 80’s as a junior accountant had involved losing my job twice without redundancy. Unlike a number of my peers though I was never unemployed. Had some less than wonderful employment experiences but never unemployed.

In April 1990 I had no idea though of the forthcoming recession and did what every other young antip professional did when arriving in London – I became a temp.

I worked for Warner Music using Lotus 123 to put together the monthly management accounts. This largely consisted on taking the general ledger and repackaging it into a usable form. It sounds easy but it wasn’t. My colleague whose desk was in front of mine did the same thing for the balance sheet. After several days and lots of checking with each other we would get the same number and we would stand up and high five each other. Yes we were cool. And our manager would then breathe a sigh of relief that he would be able to deliver that month.

I imagine Xero now does what Serjit and I did then.

Warner Music was based in North London – Alperton – and was a huge eyeopener for the white girl from Christchurch. Highlights included:

My (Jewish) manager eating his bacon sandwich complaining like mad about the bombing of Jerusalem by Iraq because – it had interfered with the football game he was watching.

Asking my very happily married (Sikh) colleague how he met his wife and being told it was arranged.

That lots of the happily married young people in the warehouse and the office had arranged marriages.

Being asked if New Zealand celebrated Christmas.

Wearing jeans to work – it was a record company.

Discovering that the white South African auditor was not only a perfectly reasonable human being – but that I had more in common with him than I did the English. FWIW the two of us discussing issues used to have the office in hysterics with our accents.

Anyway back to New Zealand tax. As a temp I worked for a labour hire company and not for Warner Music. The received wisdom was there were two ways I could be employed. Through my own personal services company which is what the cool kids did. They all had accountants and could claim expenses. Or through having PAYE deducted.

I cannot for the life of me remember why – but I went into the PAYE system. And oh man that was the right thing to do. I saved myself a world of pain because ultimately I saw the cool kids having to make appointments with accountants during chargeable work time; organise all their bank statements; and find cash for large tax payments. Although I didn’t see it I would imagine there was also a degree of just letting it all go and getting on a plane – effectively with their tax money -when their visa ended.

But all this ‘I am an independent contractor employed through a company’ stuff was a complete nonsense as they were employed by their labour hire firm as much as I was by mine.

Now Hon Mike is having a go at this nonsense in New Zealand. Nice one Hon Mike nice one. In the recent bill he is making labour hire firms withhold from all payments to all people and ‘companies’ they place. A good start. There is still all the people who contract outside those firms and whose activities are not on those schedules. You know – policy analysts for example. Next bill will be fine.

Recently the Labour party also had a go in this area trying to get the minimum wage legislation extended to contactors. The select committee report discusses the issues quite well including the general issue of the move from employees to contactors in the labour market which is of course a move out of withholding with the consequent risks to the PAYE tax base.

I was also pleased to see this discussion as in Budget 2012 the government replaced the child’s tax credit with a tax exemption for non PAYE income for children at school. David Cunliffe – I think – called it the Paper boy Tax budget. Nice line. But from the opposition there was a lot of wailing that these children would earn $20 for 5 hours work and now they would only get $17 because of tax. At the time I remember thinking:

gosh that is a low hourly wage

seriously – it is the tax that concerns you in that scenario?

But to be fair it was removed under budget night urgency where the opposition gets zero prep time. So with more prep we got the entirely sane and well thought out bill from David Parker. Tax however was missing.

It is entirely likely that such low income workers are using every dollar they earn and not meeting their tax obligations. Now Hon Mike you and I both know that this is called tax evasion. And you and I know this is a criminal offence; carrying a risk of a 150% penalty and jail time.

So Hon Mike how about a bit of joined up government. You already control the Revenue and Labour officials. Treasury whether it is Tax, Labour Markets and Welfare or Social Inclusion must also have a view.

And your government has made such an artform of swiping the best ideas from the opposition.

So go on. Nick this one too. Slap withholding obligations on the payer and call it your own.

Early in my first stint in the field I properly discovered hybrids. I was just so impressed. Impressed in a German high command discovering Enigma had been cracked kinda way – but impressed none the less. Here were instruments/entities/transfers that could render up tax benefits without tax authorities getting exercised and using words like avoidance, unacceptable or frustration. In the midst of the Structured Finance investigations to look at something so clean and so simple but so (tax) deadly was awe inspiring.

Some people may remember where they were when JFK was shot. I remember when I fully analysed my first Australian Limited Partnership – sitting at my desk at work – ticking off all the legs; finding it fully complied with Australia AND New Zealand’s law but it generated a net deduction. Like I say – completely blown away. As time went on I started to see a place for those words avoidance, unacceptable and frustration- but first love is a very special thing. Ash Ketchem may have got subsequent pokemon but Pikachu was always his first love; and the Australian Limited Partnership was my Pikachu.

And then like pokemon once you see/catch one – you start seeing them everywhere. There were your every day hybrids hiding in plain sight like the workhorse the redeemable preference share. Like Bulbasaur, solid and dependable. Deductible in Australia and imputable in New Zealand – until they weren’t. Then came blasts from the past the convertible note sisters – mandatory and optional – Squirtle and Charmander respectively. Deductible in New Zealand and not taxable in Australia. Or even the well old vehicle the New Zealand unit trust, like Snorlax always there. Loss consolidatable in Australia and New Zealand – until it wasn’t.

Charizard, or repos, played a major part in the Structured Finance transactions. Full bodied and lethal. Here legal ownership was recognised in New Zealand but not in the United States. Whoa. Definitely an evolved form.

There were also lesser known ones. The New Zealand unlimited company – like a company but with no ltd at the end. Kind of an Ekans with no tail. Company treatment in New Zealand and partnership in United States. Losses counted twice – Awesome.

And not to be out done New Zealand also created its own. The New Zealand Limited Partnership; like an Australian Limited Partnership but newer. So Raichu in other words.

There were also exotic ones. My particular favourite was the mandatory preferred partnership interest aka the redeemable preference share for limited partnerships. Like Togepie (or Jigglypuff) just so cute.

So many pokemon hybrids so little time!

But now Hons Bill and Mike have decided they should all get back in their balls; pokemongo should be deactivated; and the gameboys should be retired. Good call boys good call. Because like pokemon they were glorious but now it is time for us all to do some real work.

Or more particularly let’s talk about the current Minister of Revenue Hon Michael Woodhouse.

There were lots of cool things I got to do when I was at the Treasury. My particular fave though was getting to coordinate the legislation that went through on Budget Night under urgency. I probs didn’t have to be there the whole time but through a combination of excessive diligence and deep love of the atmosphere in the House I was.

Urgency can go to 10pm on a Thursday and midnight on a Friday. So you can imagine it can get pretty surreal at times. And pretty much the only people who are there the whole time are the respective chief whips – or is that chieves whip – and an overly conscientious Treasury legislation coordinator. Although the formers and the latter NEVER interact.

It was in my first year of doing this gig that I noticed the Government Chief Whip Michael Woodhouse. There was just something about him that I liked. Whether it was the way he said: New Zealand National Party – twelve thousand million, Maori Party three, Act 1, United Future 1; or the way he seemed to be part of the National Party team while also not being part of some of the rougher baracking; I couldn’t say. Regardless the man impressed me.

Fast forward to him joining the Cabinet and becoming Hon Mike. He was Minister in charge of the changes to workplace safety. Now your correspondent with her left leaning tendencies was not best pleased with the final outcome but in her view Hon Mike took one for the team. Let me explain.

The original Bill was one that was widely consulted on and had agreeement of Business and the CTU. That would not have happened without Hon Mike’s ministerial sanction and support. Cabinet as well but a Minister has to take a paper to Cabinet and that would have been MW or a predecessor.

As an aside this would have been a great piece of work to have been an official on – at the beginning anyway. A chance to make the world a better place and a form of redeemption after Pike River. Although I understand that the Forestry death toll was also uppermost in the heads of those involved in this work. Regardless at times like this there is nothing better than being a Public Servant.

As a further aside I really do hope there were some juniors on this work. As watching how this piece of work turned from a ‘hands across the water’ bipartisan love fest into a partisan bureaucrat’s nightmare would seriously season a junior official and be the stuff of a Treasury senior analyst interview. Either that or send them screaming into the waiting arms of the private sector. And as I tell my children, and anyone who will listen, good experiences are not always pleasant ones.

But back to the topic and enter backbench revolt stage left. Hon Mike and his officials were then scrambling to make the best of a bad job. And it wasn’t pretty – worm and lavender farmers but not dairy farmers – geez. Big ups to Sue Moroney for spotting that – shows an attention to detail that politicans are often not big on. But here’s the thing – in all the resulting fallout all of it landed on Mr Woodhouse. Not the PM, not the Cabinet, not the National Party – all on Hon Mike. I was so impressed.

For his sterling work on this he was then ‘rewarded’ with the Revenue portfolio. Since Michael Cullen handed it on, it has been a pretty junior Ministerial position – often outside Cabinet. This continues to surprise me as it can be one of the harder gigs. For everyone else, they have to make decisions on giving stuff to people or not giving stuff to people. The MoR has to make decisions on taking people’s stuff off them in the first place. And none of them go quietly.

So how is the boy going?

Took some of the crap on foreign trusts. Tick. Didn’t manage to shield the PM this time – but geez there are limits to anyone’s powers on that one.

Commissioned and got the Shewan report through Cabinet. Tick.

Got the changes to the non-resident withholding rules which make foreign capital pay tax on interest income in a way they haven’t done in decades – through Cabinet and into a bill. Tick.

Now some could argue this stuff should have happened years ago. And maybe it could but Hon Mike wasn’t in charge then. So for an interim ranking I’ll give him the same ranking I always got at the Treasury as a Principal Advisor -‘meets expectations’. Because like the Treasury my expectations are always very high.

For the final review and ranking we will have the benefit of the 2017 tax expenditure statement which will show just how good a gatekeeper he is. More that statement on Friday.